IR35 is not new! It is the common name used for intermediaries legislation which was introduced in 2000. Its primary aim was to counter the perceived increase in the avoidance of tax and national insurance by individuals providing their services through a Limited Company set up for that purpose, commonly referred to as a Personal Service Company (PSC). The intention was to examine the relationship between the client and the worker and where disguised employment was apparent, to ensure that same levels of income tax and national insurance were paid as a normal direct worker engaged on a PAYE basis.
The PSC’s was responsible for understanding the legislation and determining the status of each assignment with regard to IR35.
So what is changing?
The draft legislation introduced by the government in July this year required Private Sector Clients to assess and determine the employment status of their contractors from April 2020. This requirement was introduced in the Public Sector in 2017.
Crucially, the way in which an individual’s status is assessed and reviewed is not changing, just the responsibility has moved from the contractor to the end user client.
HMRC developed an online tool “Check Employment Status for Tax” (CEST) in 2017 which has been somewhat discredited by users in the public sector as not fit for purpose. The tool is to be updated prior to roll out in the private sector, but may not be ready until March 2020.
The end user client must demonstrate “reasonable care” when assessing contractors and produce a Status Determination Statement(SDS) which outlines the reasons for which the determination has been based on. It is proposed that all parties in the contractual chain will have to be given the SDS, if at a later date it is found that reasonable care has not been taken in producing the SDS it will be deemed worthless.
What should End User Clients do?
End User Clients should carry out an assessment of all roles filled by contractors, some of the main areas being:
Mutuality of Obligation (MOO)
- Do you have clear & defined assignment end dates for the individual?
- Are you obliged to provide further work to the individual?
- Is the individual obliged to accept any further work?
- Does the individual have the right to provide a substitute to deliver services? (contract & real life)
- Do you require the contract to provide their personal services?
- Would you accept a suitable replacement (if required – If not why not)?
- Do you instruct the individual on HOW to complete the work or provide the service?
- Can the individual provide their services where they want? (If not, why not?)
- Do you regularly reassign tasks to the individual?
- Do you allow the individual to provide their own tools & equipment? (if not, why not?)
- Do you expect the individual to correct any mistake in their own time and at their own cost?
- Do you insist that the individual has the relevant business insurance in place to cover the service provision?
Part & Parcel
- Do you treat the individual in the same way as employees? E.g. Annual reviews or bonuses.
- Do you identify contractors differently to employees e.g. lanyard/passes & email addresses etc?
- Contracts – Are they fit for purpose through the supply chain?
- How many contractors do you have operating via PSC’s?
- Communications – Outline how and when you will communicate with contractors & agencies.
- Review supply chain and identify any potential risks (e.g. direct contractors)
- Can you make any changes to how you utilise and interact with your contractors?
- Do you have a contingency plan to back fill positions (if required)
As with all changes there has been a lot of speculation about the impact of IR35 in the Private Sector, however Calco Services believe that with the correct process in place before engaging contractors and ensuring that they are not treated in the same way as employees all parties to the contractual chain can remain compliant with the requirements of IR35.
For further information please contact Bill Gray on 020 8655 1600.
Thanks to Champion Contractors for background information